Fixing Azerbaijani bank may dent sovereign's image

Significance

If two-thirds of creditors agree to the scheme by a July 13 meeting, the government will exchange IBA debt for sovereign loans but it has made it clear it does not bear responsibility for the state-owned bank's liabilities.

Impacts

• Banking sector instability has negative implications for confidence and economic growth.
• The potential increases in sovereign debt appear manageable.
• Reducing the size of IBA will bring more competition to the banking system.